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Expectations were high for today's number from the National Association of Realtors. 

Existing U.S. home sales rose in May, up 2.4% to a seasonally adjusted annual rate of 4.77 million units during the month from a downwardly revised 4.66 million units in April.  Total sales were still down from a year earlier however, when the annual pace reached 4.95 million units.  Using a three month moving average, which incorporates seasonally good and bad months, we are settling in at a run rate of slightly more than 4.6 million homes.  The national median home price fell in May, though, to $173,000, down 16% year-over-year. 

While the printed number was below expectations, the decline in the month-supply is a net positive surprise.  The month's supply declined to 9.6 months from 10.2 months in April.  Given all of the foreclosure news, this supply number is most likely understated.

The national average for a 30-year, conventional, fixed-rate mortgage edged up to 4.86% in May from a record low 4.81% in April.  Last week, it was reported that the 30-year fixed rate is at 5.38%.  The increase in rates may discourage some new buyers in the coming months while motivating others to jump in and buy now before rates move even higher. 

The incremental news on the consumer continues to suggest that momentum is slowing in a number of key areas.  Along with the air coming out of the reflation trade, the Consumer Discretionary (XLY) is the third worst performing sector over the past week, declining 5.5% versus the S&P 500's decline of 2.9%.  We remain short Consumer Discretionary (XLY).  

Howard Penney

Managing Director

EYE ON HOUSING – A mixed blessing - hpch